Spec. Buy C$8.25 Initiating Coverage · 2017. 2. 25. · - We are launching coverage of Blackline with a Speculative Buy rating and $8.25 target, which is based on our DCF valuation

Beacon Securities Ltd.| 66 Wellington Street West, Suite 4050, Toronto, Ontario, M5K 1H1 |416.643.3830|www.beaconsecurities.ca

Blackline Safety Corp. (BLN–V)

February 21, 2017

One More Time! Game Changer In Gas Detection

Company Profile

Calgary-based Blackline Safety is a global provider of employee

safety monitoring solutions leveraging wireless location technology.

Blackline’s portfolio of solutions (which includes both hardware and

cloud-hosted safety monitoring applications) address almost all lone

worker scenarios including indoors, outdoors, in between buildings,

hazardous sites, while driving and in remote locations.

Investment Thesis

The work-alone market is a large, emerging market opportunity,

which Blackline is well positioned to address with its market-leading

Loner platform. However, we believe a more immediate growth

catalyst has presented itself in the gas detection market where we

view Blackline as a having a potentially disruptive offering (the G7).

Investment Highlights

- We view the work-alone market (~15% of the global workforce)

as comprising 53M workers in North America and Europe. Only

~850k of these workers are monitored usually through manual

call-in systems, which suggests there is a large untapped

opportunity for Blackline to address with its Loner connected

safety monitoring solutions.

- Despite the size of the market opportunity, we believe there is a

still an education process required to drive adoption of Blackline’s

Loner platform. In our opinion, there is a more near-term growth

opportunity for Blackline to leverage its platform in the portable

gas detection equipment market.

- The portable gas detection equipment market is a mature one

with ~5.3M end users. We value this market at ~$3.5B in potential

annual recurring revenues. It is also dominated by Honeywell with

its passive (i.e. not connected) portable gas detectors.

- This is a market, which the Blackline team knows very well given

that the technology underlying Honeywell’s gas detection

products were developed by this team at BW Technologies.

- In our opinion, Blackline’s G7 connected gas detectors (shipping

late this quarter) could be a hugely disruptive offering. G7’s key

differentiator is its always on connectivity, which boosts

productivity, lowers overall operating costs, and warns both the

user and live monitoring personnel of environmental exposure risks

to both toxic and explosive gases. This connectivity enables real-

time emergency response and evacuation management, thus

driving improved outcomes (i.e. saving lives).

- We are launching coverage of Blackline with a Speculative Buy

rating and $8.25 target, which is based on our DCF valuation.

Spec. Buy C$3.05

C$8.25

170%

YE: Oct FY17E FY18E FY19E

Revenue (M) 7.9 11.7 18.3

EBITDA (M) -7.1 -5.3 -1.8

FY17E FY18E FY19E

EV/Sales 11.5x 7.8x 5.0x

EV/EBITDA n/a n/a n/a

28.6

Shares O/S (FD) 32.0

Market Cap (Basic) $87.1

Market Cap (FD) $97.6

Cash $6.3 $0.20/sh

Debt $0.0 $0.00/sh

In-the-money options and warrants $11.3

EV $91.3

[email protected]

Stock Performance

Stock Data (M)

Shares O/S (Basic)

Gabriel Leung 416-507-3963

Initiating Coverage

Previous Close

12-month Target Price

Potential Return

Estimates (US$)

Valuation

Company DescriptionCalgary-based Blackline Safety is a global provider of employee safety

monitoring solutions leveraging wireless location technology. Blackline's

portfolio of solutions, includes both hardware and cloud-hosted safety

monitoring applications. The company is also in the process of

launching a potentially disruptive solution for the portable gas

detection equipment market.

Research Team

C$8.25

Who They Are and What Do They Do?

• Calgary-based Blackline Safety develops, manufactures and markets products and services for real-timeemployee safety monitoring. The company was founded in 2004 and went public via an RTO in 2009.

• The company’s flagship Loner platform enables real-time monitoring of lone workers to ensurelegislative compliance, improved productivity and cost savings, the fastest possible emergencyresponse, improved outcomes, and efficient triggering of evacuation management, amongst others.

• We view the work-alone market (~15% of the global workforce) as comprising 53M workers in NorthAmerica and Europe. According to Berg Insight, only 850k of these workers are monitored usuallythrough manual call-in systems, which suggests there is a large untapped opportunity for Blackline toaddress with its connected safety monitoring solutions.

• This month, the company also expects to start shipping its new G7 product portfolio, which willcombine conventional portable gas detection with evacuation and lone worker monitoring technologyalready established through the Loner platform.

• The portable gas detection equipment market is a mature one with ~5.3M end users. We value thismarket this market at ~$3.5B in potential annual recurring revenues (based on Blackline’s ~$55 monthlylease plan for single-gas detection). Honeywell currently dominates the market for passive (i.e. notconnected) portable gas detectors, which it acquired from First Technology plc. First Technologyacquired its portable gas detector product portfolio from BW Technologies, which was founded byCody Slater, who is the current CEO of Blackline Safety.

1Gabriel Leung, 416-507-3963

Did It Before, Doing It Again

• We feel it is important to review Blackline’s management team, which is led by Cody Slater who

joined as Chairman and CEO in 2010 as it represents a key part of our investment thesis.

• Mr. Slater is perhaps best known as the founder of BW Technologies, which was a Calgary-based

manufacturer of portable gas detection equipment and was acquired by First Technology plc in

2004 for an enterprise value of ~$240M, representing ~3x EV/Sales or 15x EV/EBITDA. First

Technology was ultimately acquired by Honeywell in 2006.

• Since joining Blackline Safety, we believe Mr. Slater has been influential in re-focusing the

company from the consumer GPS market to industrial employee safety monitoring. We also

believe he was influential in bringing over many executives from BW Technologies, including

COO Kevin Meyers, VP Sales and Product Management Sean Stinson, VP Product Development

Barry Moore, Gavin Boorman, MD of Blackline Europe, along with a number of Board members.

• With the upcoming launch of Blackline’s G7 platform, we believe Mr. Slater and his team are well

positioned (with their many years of experience working with potential customers and resellers

at BW Technologies) to capture a meaningful portion of the portable gas detection equipment

market, which we view as a very large opportunity and also one, which has lagged in innovation.


Work-Alone Market Overview

• According to Berg Insight, there are ~53M lone workers in North America and Europe, which

represents ~15% of the overall workforce. Examples include workers in oil and gas (e.g.

surveyors, land managers, drillers), construction workers, security guards, utility workers, etc.

• Lone workers face many dangers on the job. From slips, trips or falls and heavy objects to

vehicle collisions, explosions, fires and chemical exposures.

• Whether a lone worker is exposed to risk or not, many jurisdictions such as Australia, much of

Canada, France, Germany, UK, have now put in place legislation that requires work-alone

monitoring.

• Lone worker monitoring is generally done through phone-based check-in systems where

employees receive automated calls to a smartphone, which we view as productivity draining and

costly (i.e. think call center costs and the time to call in).

• In our opinion, there is an opportunity to leverage technology and wireless connectivity to

automate and enhance lone worker safety monitoring. This is the basis of Blackline Safety’s

Loner product portfolio.


Loner - Employee Safety Monitoring

• Blackline’s Loner portfolio of employee safety monitoring solutions combine wireless

communications, satellite, positioning technologies, inertial sensors and easy to use

interfaces to instantly communicate safety incidents to monitoring personnel for an

immediate, pin-point emergency response.

• Loner combines several technologies to drive a comprehensive user experience:

– 3G, cellular and 900 MHz spread spectrum data communications

– GPS, cellular and proprietary indoor/outdoor location beacon positioning

– Inertial sensors for fall and person-down detection

– Two-way voice communications and text messaging between the user and monitoring personnel

– Cloud-hosted Blackline Safety Network monitoring infrastructure and Blackline Live monitoring user

account (customers also has the option of monitoring themselves internally).


Loner (Continued)

• Blackline Safety’s monitoring devices deliver automatically and manually-initiated alerts,including:

– True Fall Detection

– No-motion (person-down) detection

– Missed employee check-in detection

– An emergency latch (similar to pulling a fire alarm)

– Silent emergency button

• Blackline’s broad portfolio of products and service is able to address the needs of workermonitoring across every industry, employee role and work scenario. The company’s solutionscurrently monitor 15,000 workers, including 7,400 via its Safety Operations Center (i.e. the rest aremonitored by customers internally).

• Marquee customers include Husky Energy, ConocoPhillips, Ryder, Suncor, Amazon, and Unilever.

• The benefits of having a connected safety monitoring platform include: immediate detection of anincident, real-time alerts to monitoring team, fastest possible emergency response, improvedoutcomes, best utilization of nearby responders, efficient triggering of evacuation management,precise mapping of employee locations, cost reductions (i.e. less administrative staff), andcompliance to legislation where required.


Loner Product Portfolio

• Loner M6, a safety monitoring device for indoor and outdoor locations covered by 3G wireless

• Loner M6i, a safety monitoring device for indoor and outdoor hazardous locations covered by 3Gwireless

• Loner 900, a safety monitoring device for indoor and outdoor locations in remote and hazardousenvironments

• Loner Bridge, a portable satellite base station for remote locations, communicates with Loner 900

• Loner Mobile, a safety monitoring application for mainstream smartphones

• Loner Duo, a Bluetooth accessory for Loner Mobile for medium to high risk work-alone scenarios

• Blackline Location Beacon, an indoor/outdoor location technology that provides precise positioningwhere GPS signals are weak or unavailable

• Blackline Live, a cloud-hosted, live safety monitoring portal for safety alert management

• Blackline monitoring, a 24/7/365 live monitoring service offered by Blackline or approved partner


Connected Safety – How It Works


Compelling Recurring Revenue Model

• Blackline’s revenue model for its Loner solutions involves both an upfront component

(i.e. for its Loner M6i device (for cellular networks) and Loner Bride System (for satellite

networks), along with an annual service fee (for maintenance and/or 24/7 monitoring).

• Loner is also available on a 3-year lease option called Loner Complete (introduced a

year ago in North America only), which includes both the hardware and service plans.

~1,000 (of ~15,000) end users have chosen this payment option.


One-year Three-year Total Hardware Three-year Total

Solution Hardware Service ownership cost Solution & Services ownership cost

Loner M6i (cellular) $489 $459 $1,768 Loner M6i (cellular) $62 $2,246

Loner Bridge + Loner 900 Loner Bridge + Loner 900

System (satellite) $1,588 $969 $4,097 System (satellite) $144 $5,184

Upfront Purchase Three-year Lease option

Loner Revenue Model

Source: Company filings

Portable Gas Detection - Massive Near-Term Opportunity

• While we view lone worker safety monitoring as a large long-term market opportunity, we believe thecompany is poised to capitalize on an equally massive near-term opportunity.

• Employee-work gas detectors are commonplace for situations where there is risk of employee exposure totoxic and/or combustible gases. Conventional gas detection has historically operated like smoke detectorsthat use a local alarm to call for help, although if no one is nearby to deliver aid, the employees call forhelp can go unanswered.

• In response to this lack of connectivity between a worker and an emergency response team, in November2016, Blackline announced its new G7 platform, which will expand upon its current connected monitoringtechnology in Loner to include portable gas detection and environmental monitoring.

• Portable gas detection is a market, which Blackline’s executive management knows well given they werethe original leadership team at BW Technologies, which was first acquired by First Technology plc in 2014and then by Honeywell in 2016. Today, Honeywell/BW remains the undisputed market leader.

• G7’s key differentiator versus traditional portable and fixed gas detectors offered by competitors includesits always on connectivity, which warns both the user and live monitoring personnel of environmentalexposure risks to both toxic and explosive gases. This connectivity enables real-time emergency responseand evacuation management.

• G7 has received intrinsic safety certification for G7 in North America (and should ship at the end of thismonth) with certification for Europe, satellite connectivity, and combustible gases expected in late April.


Sizing The Portable Gas Detector Market


• The global gas detection equipment market has been expanding at a steady pace over the pastfew years. Stringent government legislations regarding the safety of workers and property andthe increased recognition of potential hazards in a variety of environment around the world arethe prominent factors supporting the growth of the gas detection equipment market

• On the basis of product type, fixed gas detectors held the leading share of ~55.0% in the overallmarket. However, portable gas detectors (Blackline’s focus) have been gaining popularity.

• By type of technology, while single-gas detection dominated the market, multi-gas detection islikely to expand at a CAGR higher than that registered by other technologies.

• Our discussions with management suggest annual sales for single portable gas monitors are~1M units and ~650k for quad-gas.

• Meanwhile, the install base of single gas monitors is ~2M and ~3.3M for quad-gas detection fora total install base of ~5.3M units.

• Based on Blackline’s monthly lease payment plan of ~$55 per unit for a single gas detector, weestimate the ~5.3M unit install base represents an annual recurring revenue opportunity of~$3.5B.

G7 – A Potentially Disruptive Offering


• In our opinion, innovations in portable gas detection have slowed over the last decade, with R&Dfocusing primarily on battery performance and economy with systems that are disposed at the end oftheir service life. In our opinion, the lack of connected solutions and innovation in this space has createdan opportunity for Blackline to capture meaningful market share.

• We view G7 as a disruptive offering in the portable gas detection market for several reasons.

– It leverages the connectivity features of Loner, including two-way voice communication, text messaging,and automatic detection when someone is not moving, either from a fall, accident or health incident, or ifgas is detected so that help can be immediately deployed (with monitoring either provided in-house or viaBlackline). It empowers evacuations with mass notifications while accounting for the location of everyemployee through to muster points.

– Conventional gas detectors are either disposed of at the end of their service life, requiring new equipmentto be deployed, or they are taken out of service and individual gas sensors are replaced, which is timeconsuming. By contrast, G7 supports customization using interchangeable gas sensor cartridges with achoice of single or multiple gases (hydrogen sulfide, oxygen, combustible gases, carbon dioxide, carbonmonoxide and ammonia) ensuring that equipment stays in the field, maximizing up-time.

– G7 addresses the issue of compliance where equipment must be periodically calibrated to ensure accuracyof gas detection readings plus regular testing is needed to prove operation of gas sensors betweencalibrations. Rather than manually gathering calibration and testing data in the field directly from calibrationdocks and examining each record, G7 automatically communicates all calibration and testing in real-time tothe Blackline Safety Network for complete reporting. Session data is also communicated for comprehensivereporting. Firmware upgrades can also be performed over the air maximizing up-time.

G7 Portfolio – Adding Gas Detection To Loner


• G7c safety monitoring device for indoor and outdoor locations covered by 3G wireless

• G7x safety monitoring device for indoor and outdoor locations for use in remote locations (expected late April)

• G7 Bridge, a portable satellite base station for remote locations, communicates with G7x (expected late April)

• G7 Dock, an accessory product used to calibrate G7 devices periodically while also offering frequent testing to

prove that gas sensors are fully functional. Blackline’s G7 Dock sells for ~$800 per unit versus traditional gas

detector docks at ~$3,000. In the case of Blackline, data gathered from these docks are sent automatically to

central databases. By comparison, traditional docks often store data on local memory cards making them more

expensive and less efficient. A traditional dock also does not provide a company with visibility that the device in

the field is out of compliance until it is docked.

Revenue Model and Pricing Versus Honeywell


• G7 will be priced comparably to Loner except the monthly service charge (whether the hardware isbought out-right or leased) will be higher by $5 – $15 depending on whether the customer has acquired asingle or quad-gas detector. Included in the monthly service charge are gas sensor replacements Weanticipate that over time, the Loner portfolio will be phased out or marketed as a lower-end product (i.e.no gas detection).

• By comparison, competing products from Honeywell range between ~$150 for a single gas detector to~$750 for a quad-gas detector. Single gas detectors are typically replaced after two years, while quad-gashas a 3 – 5 year life cycle.

• While Honeywell’s pricing at first glance is lower than Blackline, clearly, one needs to factor in theadditional features and functionality associated with G7, the fact that quad-gas detectors typically need toreplace sensors during the 3 – 5 year life (with costs as high as 50% of the detectors themselves), and thecost and time savings associated with G7 (real-time monitoring for compliance, reduction in call centerrequirements, faster time for calibration, etc).

• As adoption ramps for G7, we expect the company will be able to point to more reference customers andROI case studies to drive the business case for its products.

• From a sales channel perspective, the company has historically sold Loner through its direct sales channel.However, with the imminent launch of G7, the company plans to use a dual direct / indirect model withchannel partners coming primarily from companies that currently re-sell Honeywell’s gas detectors andwho Blackline’s management team has dealt with previously via BW Technologies.

Financial Review – Still Early In The Game


• Blackline recently reported its fiscal Q4 results (ended October), which included revenues andEBITDA of $2.1M and negative $2M respectively. Last year, the company generated $2.3M inrevenues and an EBITDA loss of $1M. Note that the results do not include contributions from G7,which is expected to begin shipping in late Q2 FY17 (ending April).

• Of the $2.1M in quarterly revenues, $600k was associated with hardware sales and $1.5M inservices, which largely comprises monthly service or lease revenues. Last year the mix was $1Mand $1.2M respectively.

• The company has ~$6.3M in cash. There in-the money warrants, which could bring in ~$8.8M(5.5M warrants at weighted exercise price of $1.62) and options that could bring in ~$2.5M (1.7Moptions with a weighted average exercise price of $1.46).

• Gross margins are currently trending in the ~50% range. However, we think this could increase asthe percentage of customers choosing the lease payment option increases (leases have ~80%gross margins, which factors amortization of leased hardware, a cost of ~$200 with an associated5-year life). The upfront cost of leased hardware show up in the company’s capex line.

• The company has ~$26.5M in Canadian non-capital loss carry forwards, which begin to expire in2028.

Financial Assumptions


• For the purposes of our financial model, we have made several key assumptions:

– For FY17/FY18/FY19, we assume the company generates net adds of 4.4k, 7k and 12k with the expectation

that the first / second year of the launch of G7 comprising primarily pilots. We expect a more meaningful

roll-out in FY18/19.

– For our forecast period, we assume 50% of net new subs are buying the hardware upfront and pay a

monthly service fee of ~$40. We assume the remaining 50% are using the Loner Complete lease program

for $55 per month.

– We are forecasting annual cash operating expenses of ~$12 – 13M for our forecast period.

– We are modeling maintenance capex of ~$600k a year. Also included in capex is the cost of leased

hardware (~$200 per unit).

• In our opinion, our growth assumptions are very conservative in that by FY19, we are still only

assuming 12k net adds versus 1.65M single/quad gas detectors sold annually or 1% market share.

• From a liquidity perspective, the company’s last reported cash (Q4 FY16) was $6.3M with in-the

money warrants and options that could bring in ~$8.8M and $2.5M respectively.

• Based on our growth assumptions, we believe the company will likely need a small cash infusion

in FY18 before moving to breakeven operations in FY19.

Financial Estimates


(end-Oct) FY17e FY18e FY19e

Revenues:

Hardware 880,000 1,400,000 2,400,000

Service 7,061,472 10,338,972 15,896,472

Total revenues 7,941,472 11,738,972 18,296,472

EBITDA -7,092,290 -5,261,679 -1,805,859

Total Subs 19,400 26,400 38,400

Source: Beacon Securities

Blackline Safety - Financial Estimates

Initiating With a Spec. Buy Rating and $8.25 Target


- Given that Blackline is still in the very early stages of growth, particularly with its G7 platform, we

believe a DCF is the most relevant analyst for valuing the stock.

- Key assumption in our DCF include:

- a 10-year revenue CAGR of 35%.

- Operating margins moving to ~45% within 10 years

- Exiting FY26e with ~290k subscribers representing ~5% of the total number of end users of portable gas

detectors

- A terminal growth rate of 5%

- A discount rate of 12%

- The net result is a DCF valuation of C$8.25/sh.

- We are launching coverage with a $8.25 target and Speculative Buy rating. Key milestones to

track include full certification of the G7 platform (i.e. for satellite, combustible gas, by the late

April 2017 timeframe), new large G7 reference customers, and key distribution partner sign ups.

Risks To Our Analysis


Additional Financing Requirements – The company is in the very early innings of selling its G7

platform. As such, it is difficult to gauge the rate of adoption. The company is currently in an

negative cash flow position and may therefore need issue additional equity to fund its growth.

Timing of Certification – The company’s G7 platform has received intrinsic safety certification for

cellular networks in North America for both its single or quad-gas configurations, excluding

combustible gases. The company expects to receive European, satellite and combustible gas

approval in the late April timeframe. However, any delays in receiving these certifications could

defer potential sales.

Competition – While we believe the company has a potentially market disrupting product with G7,

the company does face larger, better financed competitors such as Honeywell. Any attempt by

Honeywell to offset its lack of features and functionality (vis-à-vis G7) through price concessions

could act as a growth headwind for Blackline.

Seasoned Management Team


Cody Slater, CEO & Chairman, founded BW Technologies in 1986, a global manufacturer of industrial and commercial gas detection devices.

Brendon Cook, CTO & Co-Founder, was previously Product and Marketing Manager at CSI Wireless Inc. (now Hemisphere GPS Inc.) prior to

founding BlackLine GPS in 2004.

Barry Moore, VP Product Development, served as VP of Product Development for BW Technologies.

Sean Stinson, VP Sales and Product Development, was previously Project Manager and Systems and Software Engineering at BW

Technologies. Later assumed the role of Product Marketing Manager at Honeywell Analytics.

Kevin Meyers, COO, was VP of Operations at Imaging Dynamics. Prior to IDC, Mr. Meyers worked as VP of Operations at BW Technologies.

Shane Grennan, CFO, was the Controller of a Mitsubishi Corporation subsidiary in the natural gas industry and with PricewaterhouseCoopers

as a Senior Manager in their audit and assurance group.

Greg Rude, Director of Corporate Sales, has over 20 years of experience selling industrial safety products and services in the North American

market place previously serving as North American Business Development Manager at BW Technologies and then National Sales Manager at

Honeywell Analytics.

Clark Swanson, President and Director, previously held an executive position for SourceCode Technology Holdings, Inc. and also served as

EVP of Universal Studios based, White Eagle Productions.

Gavin Boorman, MD of Blackline Europe, was formerly the European Managing Director for BW Technologies.

Board of Directors

Cody Slater, CEO & Chairman of Blackline Safety Corp.

Clark Swanson, President & Director of Blackline Safety Corp.

Michael Hayduk, Lawyer with Smith Mack Lamarsh

Dr. John Finbow, Independent businessman providing an advisory role to technology firms

Robert J. Herdman, formerly partner with PricewaterhouseCoopers, LLP

Brad Gilewich, SVP, Corporate Affairs at the Katz Group


Capital Structure


Blackline Safety Corp: Capital Structure

Basic Shares Outstanding 28,559,855

Warrants 5,456,862 - Weighted average exercise price of $1.62

Options 1,697,916 - Weighted average exercise rrice of $1.46

Fully diluted shares outstanding 35,714,633 - Not taking into consideration stock price

Key shareholders

DAK Investments 7,673,782 shares

Director Brad Gilewirch is a nominee of DAK 1,875,848 warrants

Cody Slater 1,088,505

Other Insiders 2,270,840

Total Insider Ownership (Direct & Indirect) 12,908,975 ~36% of fully diluted shares outstanding

Source: Company filings, Beacon Securities

February 21, 2017 | Page 22 Gabriel Leung| 416.507.3963 | [email protected]

Blackline Safety Corp.

FY15 FY16 Q1 FY17e Q2 FY17e Q3 FY17e Q4 FY17e FY17e FY18e FY19e

(C$) 30-Jan-17 30-Apr-17 30-Jul-17 30-Oct-17

Revenues:

Product revenue 3,188,028 2,154,550 160,000 160,000 280,000 280,000 880,000 1,400,000 2,400,000

Service revenue 4,079,521 5,846,791 1,551,618 1,665,618 1,822,368 2,021,868 7,061,472 10,338,972 15,896,472

Total revenues 7,267,549 8,001,341 1,711,618 1,825,618 2,102,368 2,301,868 7,941,472 11,738,972 18,296,472

Cost of sales 3,862,163 4,153,024 810,228 861,528 1,016,066 1,105,841 3,793,662 5,218,979 7,720,659

Gross profit 3,405,386 3,848,317 901,390 964,090 1,086,302 1,196,027 4,147,810 6,519,993 10,575,813

Gross margins 46.9% 48.1% 52.7% 52.8% 51.7% 52.0% 52.2% 55.5% 57.8%

Operating expenses:

SG&A 4,892,218 5,756,649 1,690,609 1,690,609 1,690,609 1,690,609 6,762,436 7,000,000 7,600,000

% of revenues 67.3% 71.9% 98.8% 92.6% 80.4% 73.4% 85.2% 59.6% 41.5%

Product development costs 2,689,221 4,816,816 1,273,998 1,273,998 1,273,998 1,273,998 5,095,992 5,400,000 5,400,000

% of revenues 37.0% 60.2% 74.4% 69.8% 60.6% 55.3% 64.2% 46.0% 29.5%

Total operating expenses 7,581,439 10,573,465 2,964,607 2,964,607 2,964,607 2,964,607 11,858,428 12,400,000 13,000,000

12,013,010

Operating income -4,176,053 -6,725,148 -2,063,217 -2,000,517 -1,878,305 -1,768,580 -7,710,618 -5,880,007 -2,424,187

Operating margins -57.5% -84.1% -120.5% -109.6% -89.3% -76.8% -97.1% -50.1% -13.2%

EBITDA -3,260,062 -6,076,994 -1,908,635 -1,845,935 -1,723,723 -1,613,998 -7,092,290 -5,261,679 -1,805,859

EBITDA margins -44.9% -75.9% -111.5% -101.1% -82.0% -70.1% -89.3% -44.8% -9.9%

Finance income 24,172 32,834 11,493 11,493 11,493 11,493 45,972 45,972 45,972

Pre-tax income -4,151,881 -6,692,314 -2,051,724 -1,989,024 -1,866,812 -1,757,087 -7,664,646 -5,834,035 -2,378,215

Tax 0 0 0 0 0 0 0 0 0

Tax rate 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Net income -4,151,881 -6,692,314 -2,051,724 -1,989,024 -1,866,812 -1,757,087 -7,664,646 -5,834,035 -2,378,215

Foreign exchange translation

gain (loss) on foreign operations -61,210 314,042 0 0 0 0 0 0 0

Comprehensive income -4,213,091 -6,378,272 -2,051,724 -1,989,024 -1,866,812 -1,757,087 -7,664,646 -5,834,035 -2,378,215

EPS:

Basic -0.18 -0.26 -0.07 -0.07 -0.07 -0.06 -0.27 -0.20 -0.08

FD -0.18 -0.26 -0.07 -0.07 -0.07 -0.06 -0.27 -0.20 -0.08

Shares outstanding:

Basic 22,909,679 26,028,397 28,559,855 28,559,855 28,559,855 28,559,855 28,559,855 28,559,855 28,559,855

FD 22,909,679 26,028,397 28,559,855 28,559,855 28,559,855 28,559,855 28,559,855 28,559,855 28,559,855

Blackline Safety - Income Statement

Source: Company filings, Beacon Securities

Beacon Securities Ltd.| 66 Wellington Street West, Suite 4050, Toronto, Ontario, M5K 1H1 |416.643.3830|www.beaconsecurities.ca

Disclosure Requirements

Does Beacon, or its affiliates or analysts collectively, beneficially own 1% or more of any class of the issuer's equity securities? Yes No

Does the analyst who prepared this research report have a position, either long or short, in any of the issuer’s securities? Yes No

Does Beacon Securities beneficially own more than 1% of equity securities of the issuer? Yes No

Has any director, partner, or officer of Beacon Securities, or the analyst involved in the preparation of the research report, received remuneration for

any services provided to the securities issuer during the preceding 12 months?

Yes No

Has Beacon Securities performed investment banking services in the past 12 months and received compensation for investment banking services for

this issuer in the past 12 months? Yes No

Was the analyst who prepared this research report compensated from revenues generated solely by the Beacon Securities Investment Banking

Department? Yes No

Does any director, officer, or employee of Beacon Securities serve as a director, officer, or in any advisory capacity to the issuer? Yes No

Are there any material conflicts of interest with Beacon Securities or the analyst who prepared the report and the issuer? Yes No

Is Beacon Securities a market maker in the equity of the issuer? Yes No

Has the analyst visited the head office of the issuer and viewed its operations in a limited context? Yes No

Did the issuer pay for or reimburse the analyst for the travel expenses? Yes No

All information contained herein has been collected and compiled by Beacon Securities Limited, an independently owned and operated member of

the Investment Industry Regulatory Organization of Canada (IIROC). All facts and statistical data have been obtained or ascertained from sources,

which we believe to be reliable, but are not warranted as accurate or complete.

All projections and estimates are the expressed opinion of Beacon Securities Limited, and are subject to change without notice. Beacon Securities

Limited takes no responsibility for any errors or omissions contained herein, and accepts no legal responsibility from any losses resulting from investment

decisions based on the content of this report.

This report is provided for informational purposes only and does not constitute an offer or solicitation to buy or sell securities discussed herein. Based on

their volatility, income structure, or eligibility for sale, the securities mentioned herein may not be suitable or available for all investors in all countries.

Dissemination

Beacon Securities distributes its research products simultaneously, via email, to its authorized client base. All research is then available on

www.beaconsecurities.ca via login and password.

Analyst Certification

The Beacon Securities Analyst named on the report hereby certifies that the recommendations and/or opinions expressed herein accurately

reflect such research analyst’s personal views about the company and securities that are the subject of the report; or any other companies

mentioned in the report that are also covered by the named analyst. In addition, no part of the research analyst’s compensation is, or will

be, directly or indirectly, related to the specific recommendations or views expressed by such research analyst in this report.

As at January 31, 2017 #Stocks Distribution

Buy 70 81.4% Buy Total 12-month return expected to be > 15%

Speculative Buy 8 9.3% Speculative Buy Potential 12-month return is high (>15%) but given elevated risk, investment could result in a material loss

Hold 3 3.5% Hold Total 12-month return is expected to be between 0% and 15%

Sell 0 0.0% Sell Total 12-month return is expected to be negative

Under Review 5 5.8%

Tender 0 0.0% Tender Clients are advised to tender their shares to a takeover bid or similar offer

Total 86 100.0%

http://www.beaconsecurities.ca/

Documents

Spec. Buy C$8.25 Initiating Coverage · 2017. 2. 25. · - We are launching coverage of Blackline with a Speculative Buy rating and $8.25 target, which is based on our DCF valuation